$27 Million in Loans, but Who Pays for It?

Yesterday, the Missouri Watchdog ran an article by Brian Hook about the State Small Business Credit Initiative, which will make $26.9 million in federal funds available for small business loans in Missouri. The article includes some statements by me about the differences in private and public investment. I argue that government does not vet potential investments as carefully as an individual lender does.

Government officials don’t have the ability to identify the highest uses of these funds because those officials are too far removed from the signals that the market provides. And, even if they could identify them, they are too bogged down in bureaucracy to respond quickly.

On the surface, providing loans to small businesses seems like a good thing, but when you look closer, this policy is yet another example of the government picking winners and losers in the marketplace. The governor can implement other strategies that would grow the economy better, such as reducing excessive occupational licensing requirements in Missouri, lowering the overall tax burden, and eliminating the bureaucratic barriers to starting a business.

Additionally, supporters of programs like this one tend to argue that, because federal dollars fund the program, taxpayers in Missouri needn’t worry about the cost. This money doesn’t come out of thin air. There is no such thing as a free government program. Like all other forms of government spending, federal dollars come from the pockets of taxpayers, who can’t spend it themselves in the private sector. Furthermore, as a commenter on the article points out, programs that are funded by the federal government often come with strings attached, and therefore reduce the state’s sovereignty.